QUESTOR: AMEC is flush with cash and still showing growth

Internet services provider NBT has a strong balance sheet in an ever-expanding
sector.

The company posted a solid set of full-year numbers on Thursday – and said that it expected to post better ones for 2009.

Questor first recommended the shares as a buy at 476½p on November 13 and they have added about 14pc since then. They remain a buy.

AMEC was in bullish form when it tabled its record results yesterday. Earnings per share from continuing operations rose 55pc to 43.4p and the company raised its dividend payout by 15pc to 15.4p. The final dividend is 10.1p and the shares go ex-dividend on July 1.

Revenue rose to £2,606.4m from £2,356.2m in 2007. Net cash at the end of the period was an impressive £765m, which represents a staggering 44pc of the group's market capitalisation. The company has said it is on the lookout for acquisitions.

Questor likes companies with significant cash at this time because they will be able to snap up businesses at attractive valuations, putting them in a strong position when the upturn finally comes.

The world's energy infrastructure is also under pressure and governments will have to act to stop the lights going out. Infrastructure projects are also likely to be used as a policy tool in order to stop unemployment from getting out of control.

There is good visibility due to the size of the company's order book, which stood at £3bn at the end of last year – £400m higher than at the end of 2007. About 40pc of the year-end order book is expected to be executed in 2009.

AMEC started to exit the construction side of its business in 2005, switching the focus to higher-margin operations. Since then, chief executive Samir Brikho has been concentrating the business on areas where profits are greater, namely oil, gas, nuclear energy and mining.

There have been some fears that projects may dry up as the price of commodities slumped. The strength of the group's order book will go some way to allay these fears, although the outlook does have some uncertainty.

When Questor spoke to chief executive Samir Brikho after the results announcement he was upbeat on the prospects for the business. This was despite the recent fall in commodities prices, which some had feared would reduce capital expenditure by AMEC's customers.

He pointed out that in the oil sector, about 90pc of AMEC's businesses was with well-funded international oil companies, where expenditure is being maintained or trimmed slightly. Indeed, some oil majors have said that they are going to increase capital expenditure. One example is ExxonMobil which is rasing its investment spend by 12pc.

Mr Brikho also noted that a quarter of its mining business was with Potash Corp of Saskatchewan, Canada. Potash is an agricultural fertiliser and Questor feels this business will be fairly resilient, even in a downturn. The company also has substantial exposure to gold and silver mining operations.

Of course there are other areas unlikely to hold up as well while commodities prices are low, such as oil sands operations, but Questor feels that the forward order book is strong enough to warrant a buy rating.

The shares are trading on a December 2009 earnings multiple of 11.3 times. However, when the large cash balance is stripped out this multiple falls to 6.3 times. This is far too low for a company with such a strong balance sheet and good visibility. The shares are yielding 3.2pc, which is not spectacular, but well worth having. AMEC shares are a buy.

Group NBT

214½p -3½

Questor says Buy

NBT is a former dotcom darling, which was once known as NetBenefit. The shares lost 99pc of their value when the dotcom bubble burst, but the company has since enjoyed a dramatic turnaround.

The shares were recommended as a buy in September at 256p and they are now more than 17pc lower than their tip price. However, the shares have outperformed the FTSE 100, which is down 28pc since that time.

The company, which specialises in hosting services and provides domain-name management services to prevent "cyber-squatting", tabled a positive set of first-half numbers and the shares remain a buy at these levels.

In the six-month period to December 31, pre-tax profit rose to £2.25m from £1.9m on revenues that were 17pc ahead at £19.28m. The group also raised its interim dividend by 25pc to 1p. Positively, the company had net cash of £1.84m at the year-end.

NBT has recurring revenue streams and said it was "confident of further growth in the second half", which it said had started well. "Despite the global economic turmoil, we continue to benefit from the ongoing structural shift towards internet commerce, in which our services are increasingly seen as essential business inputs," it said.

The shares are trading on a June 2009 earnings multiple of 12.3 times, falling to 9.8 times in 2010, which is hardly demanding for a company that is showing growth in the current markets.

Despite global economic conditions, growth of internet businesses will be unstoppable and a company with such a strong balance sheet in this industry should come out of the other side stronger.